2007 Consumer Reports Ultimate Money Guide (II) – Borrowing & Debt

By Sun

This is the second chapter of 2007 Consumer Reports Ultimate Money Guide. In the first part, issues related to shopping and spending were discussed. The main topic of this part is borrowing and debt, covering credit score, credit card debt, car loan and mortgage.

Fixing a flawed credit report

Request & review: Request all three credit reports for free every year from AnnualCreditReport.com and monitor your credit periodically (I got a free report from one of the agencies every four months).

Flag & file: If there’s any error in your credit report, dispute it directly with the credit bureaus.

Check & complain: If errors supposed to be correct still show up in your credit reports, file a new complain with the creditor. Also report the creditor to FTC (go to www.ftc.gov -> Consumer Protection -> File a Complaint).

Repair & recalculate: If your rates are based on the faulty credit information, the credit bureaus are required to correct it with the lenders. Ask the lenders to recalculate your rate.

Fixing ID fraud: If you are a victim of ID theft, you can ask the credit bureaus to block the specific amount opened by the thief, even the credit application inquiries.

Old is good: Don’t close your oldest credit card, even if you never use it.

Debt is bad: Pay off the entire balance every month.

Timing is everything: Pay off your credit card balance 3 or 4 months before applying for a loan.

Get credit where due: Keep a creditor to which you make regular payment on your credit report.

Mind your mix: It turns out that being a responsible customer of national bank credit cards can get your more points than with a department store card. A mix of installment loans and a couple of national bank credit cards can improve your score.

Watch your inquiries: Hard inquiries hurt your score. When shopping for loans, getting the inquiries within a 14- to 30-day period can reduce hard inquiries.

Be careful online: Apply for credit only when you need it and intend to open an account, not to just to see what you can get.

Choose good sources: If the intention is to re-establish your credit rating, only get accounts with lenders that report fully and thoroughly to the credit agencies.

Picking the best cash-back card

Check the terms: Before signing up, make sure you read how much cash you can get back and any specific requirements on shopping and redemption.

Mind the print: Be aware of the tricks (late payment penalty, default rate, etc.) in the fine print.

Know the system: Pay attention to how much you can get back for every dollar spent.

Check the payments: Go for the cards that offer multiple options for your rewards.

Check the dates: Keep in mind the annual reward limit and the expiration date of your rewards.

Watch the tricks: Some cards give a higher reward for a short-term introductory period, but much lower afterwards.

Read the inserts: Read your statement to see if there’s any change of your reward program.

Easing your debt load

Size up your bills: Add up all your credit card debts to calculate when you can pay them off with different payment sizes. Use tools on CardWeb.com and BankRate.com.

Guard your house: Paying credit card debt with home-equity loan could put your house at risk if you continue to accumulate debt on the same cards.

Watch the traps: Avoid transferring credit card debt to cards that promise lower- or zero-rate for a short introductory period since a single late payment can lead you to another high-rate card. Don’t be late!

Watch the total: Keep the length of the loan as short as possible to reduce total payment.

Don’t settle: Don’t pay a car that you don’t like but can get a better rate from the manufacturer.

Get the score: Check your credit score before getting a loan.

Clean up errors: Fix your credit report before applying for a loan.

Negotiate smartly: Negotiate the price of the car first before talking about the financial terms with the dealership.

Getting a low-rate mortgage

Scan your score: Before applying for a loan, check out your credit report and get your FICO score.

Try your current lender: Your lender may offer you a better refinancing deal just to keep your business.

Compare all the costs: Get a complete list of fees and closing costs from all potential lenders.

Question the brokers: Use only brokers who disclose their fees and charges up front. Go to UpFrontMortgageBrokers.org to find such a broker.

Paying off your mortgage

Pay down debts: Interest rates on credit cards are usually higher and non-tax deductible. Pay down those debts first.

Feather your nest egg: Set aside 10 – 15% of your annual income for retirement savings before attempting to pay off your mortgage.

Study the field: You can pay off your mortgage by refinancing for a loan with a shorter term.

Refuse to pay to prepay: Don’t ever pay in order to prepay your mortgage.

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Actually, I don’t think it’s necessary to get the credit score unless you plan to get a loan. I paid to get a score once a year in the past couple of years, but it didn’t really help me anything, except knowing the score and that’s it. Unless you are curious

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